'Perfect storm' for airlines facing strong U.S. dollar and high oil prices

Global airlines are grappling with a double whammy from the rare combination of a strong US dollar and high oil prices at a time when broad inflationary pressures and worker shortages are also placing pressure on the pandemic-hit industry's recovery. The oil price and the US dollar typically have an inverse relationship so that when one is high, the other is low, helping to even out the financial impact on airlines that operate in other currencies. That correlation, however, has broken down in recent months with the war in Ukraine causing a spike in oil prices at a time when the United States is a net oil exporter and the US dollar receiving a boost from interest rate rises designed to temper inflation. Airlines gathering at the International Air Transport Association annual meeting in Doha this week expressed concern about the oil price and U.S. dollar rising in tandem. "For airlines, it is not good at all. It is the perfect storm," Tony Webber, a former chief economist at Australia's Qantas Airways. The US trade-weighted real exchange rate index, established in 2006, is at a record high and the benchmark Brent oil price is around $115 a barrel. Non-US airlines have dollar exposure in the form of oil prices, aircraft purchase and leasing charges, maintenance costs and sometimes debt, all of which become higher in their local currency when the dollar is stronger. "It's painful, buying fuel, buying everything," Korean Air Lines CE Walter Cho said of the strong US dollar, trading at the highest level against the won in more than a decade. "We have a lot of US dollar debt and we have to pay interest on that. Interest is low but at this exchange rate it might as well be 10%," he said on the sidelines of an airline industry gathering in Doha.<br/>